Q2 2022 Radcom Ltd Earnings Call
Ladies and gentlemen, thank you for standing by. Welcome to the REDCOM Limited Results Conference call for the second quarter of 2022. All participants are present in a listen-only mode. This is a proper presence Wonderful presentation
Instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded and will be available for replay on the company's website at www.radcom.com later today. On the call are Eyal Harari, RADCOM's CEO and Hadar Rahav, RADCOM's CFO .
Please note that management has prepared a presentation for your reference that will be used during the call. If you have not downloaded it yet, you may do so through the link in the investors section of RADCOM's website at www.radcom.com slash investor dash relations.
Before we begin, I would like to review the Safe Harbor provision. Forward-looking statements in the conference call involve several risks and uncertainties, including but not limited to the company's statements about its full-year 2022 revenue guidance, expected growth in 2023, expectations regarding the enterprise market for telecom operators, continued investment and benefits from research and development.
Its expectation to gain further interest from operators and play an important role in facilitating the transition to 5G. Its expectations about its pipeline and momentum. Further demand for its products and growth. Levels of expenses and keeping them below revenues. The potential for additional multi-year contracts. Engagements and expansion of opportunities. The company's expectations with respect to its relationships.
with Rakuten and AT&T and potential grants from the Israeli Innovation Authority. The company does not undertake to update forward-looking statements.
The full safe harbor provisions, including risks that could cause actual results to differ from these forward looking statements, are outlined in the presentation in the company's SEC filing. In this conference call, management will be referring to certain non-GAAP financial measures which are provided to enhance the user's overall understanding of the company's financial performance by excluding certain non-cash, stock-based compensation expenses.
non-GAAP results provide information helpful in assessing REDCOM?s core operating performance and evaluating and comparing the results of operations consistently from period to period. The presentation of this additional information is not meant to be considered a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles. Investors are encouraged to review the reconciliation of GAAP to non-GAAP .
Also, as recently announced, we won two new 5G assurance contracts and extended our multi-year agreement with AT&T.
Total revenue for the second quarter was $11.1 billion, representing a 12th consecutive quarter of year-over-year revenue growth, up 14% compared to the second quarter of 2021.
I am pleased with the strong demand for our innovative solutions as we win new customers' logos and expand business with our install base.
The 5G market is ramping up reflected in the momentum of our business.
In the first six months of 2022, revenue grew by over 15% compared to the first six months of 2021.
With the growth in our business and the efficient management of costs, we have generated over 3 million in cash since the beginning of 2022, resulting in cash and short-term deposits reaching 73.1 million, a four-year high.
Since the beginning of the year, we have been at break-even point and we believe the positive momentum will continue into the year second half.
As we announced in May, this selected RADCOM to monitor America's first 5G smart network.
It started its nationwide rollout in May, launching in Las Vegas.
After a month of testing, this 5G network is made available to the public in over 120 US cities, covering 20% of the US population.
We feel proud to be this assurance partner as they roll out their 5G network.
This shows RADCOM ACE to monitor the standalone 5G network, the first fully deployed on the public cloud.
RANCOM was selected because DSH wanted a best-in-class assurance solution that seamlessly integrates into the cloud and provides network-wide visibility.
Our previous R&D investment with partners like AWS to integrate radical mace with the public cloud providers have burned fruits.
Our integration with AWS enables this to use AWS Cloud along with RADCOM 8 to simplify 5G rollouts and smartly manage the network services more automatically.
As DSH move forward with its nationwide rollout, it is expected to have more flexibility and capabilities to be leveraged to generate new revenue.
In a recent analyst day hosted by DISH, they stated that the enterprise would be a significant opportunity for attaining new revenue streams with its Smart 5G Cloud platform.
This can offer enterprise customers different flavors of private networks for advanced 5G connectivity and services.
This is where our Cloud Assurance technology can help.
DISH can offer enterprise customers our assurance solution to monitor these private networks to ensure service quality and certified SLAs.
As a result, they could provide Service Assurance as a service as part of their managed service to the enterprise.
We believe the enterprise market for telecom operators has much potential, with operators taking the 5G cloud and selling premium services for new revenue across multiple verticals.
We also announced a new multi-year 5G assurance contract win with the European mobile network. This new order covers assurance for this European's operators 5G network.
RedcoMACE will enable the operator to monitor its end-to-end 5G network performance and provide end-to-end visibility that helps the operator make real-time data-driven decisions and proactively improve its network performance, ensuring top quality services are delivered to its customers.
We are excited about these new wins and the progress we are making in integrating our shown solution into these networks.
Like we did, we continue seeing lots of collaboration between telecom operators and public cloud providers like Amazon Web Services. For example, Telefonica Brazil recently validated AWS as an option for their 5G SA core. Telefonica wants to increase automation and drive new revenue with cloud-based 5G platforms.
The ease of use and speed which operators can roll out new network and services with these public cloud providers continues to gain traction, reflected in recent cloud providers earning results that have been to analyst expectation.
We believe that our integration into several cloud providers will continue generating additional opportunities.
In addition, we will continue working with technology partners to integrate Radgo MACE with other platforms to help operators manage the complexity of launching 5G and ensuring the customer's experience.
Last month, we announced radical based integration into another cloud platform.
Rakot and Sifoni selected our cloud assurance technology as its service assurance solution that will be globally available in the free world marketplace.
Rakuten Symphony is a business dedicated to selling the Rakuten Communication platform and managed services to telecom operators worldwide.
Simworld provides the single platform which includes all the application, cloud and operational data that telecom operators need to run their networks more efficiently and launch services fast.
Making RADCO MACE available in the SimWorld Marketplace with easy click and deploy access will increase our solution availability and comes with built-in workflows and unified data analytics to help more operators rapidly deploy and roll out 5G with Rakuten Symphony.
We believe that being part of this platform will open significant opportunities for us in the future.
We remain confident that our product offerings are best in class and will play an essential role in the 5G transformation as more opportunities evolve.
We continue to enhance our software solution with expanded automation and intelligence AI-based capabilities to bring value to our customers as they roll out 5G and move to launch advanced services.
In addition, we are working with the Israeli Innovation Authority and academic institutions to push cutting-edge technology forward with the telco space.
Our solution automatically analyzes millions of user sessions in real time and reveals underlying faults that otherwise would be unlikely to be identified quickly in 5G networks.
Furthermore, with the amount of data risk-causing the network increasing monthly, our solution continually evolves to help operators overcome the challenges of operating complex networks to ensure the quality of services.
As we grow the business, we maintain our laser focus on retaining and nurturing top talent. Our employee retention efforts are bearing fruit as we have kept similar headcounts since the beginning of the year.
We place a high priority on creating a culture that fosters success for our employees. We aim to provide attractive career paths and promote internal talent.
Our team is composed of talented people with unique knowledge and expertise, driving our success.
I wish to take this opportunity to thank all of Radcom employees as they continue to help us meet our business commitments.
The strong demand for RadcoMace and the 5G market ramp up is reflected in the momentum of our business and our healthy pipeline opportunities.
We are engaged with operators worldwide looking to provide their customers with exciting new 5G services and use our solution to make their network more intelligent and automated.
As a result, we see the number of engagements, the level of engagement, and RADCOM win rates very positively.
At the same time, we continue to manage our expenses while investing in the business strategically and efficiently.
To summarize, I am pleased with our performance in the second quarter.
Revenue are up and our bottom line continues to improve.
We see solid demand for our solutions and remain focused on executing our strategy as more operators transition to 5G and look for innovative assurance solutions to support their network transformation.
As a result, we remain confident in our business strategy and the role we expect to play in the 5G evolution.
Thanks to the recent wins, our growing business in our install base and our ongoing sales engagement, we have good visibility and we are raising our revenue guidance to 45 million to 48 million.
a second consecutive rise this year.
We believe this accelerated momentum will continue into 2023 to deliver a fourth successive year of growth.
With that, I would like to turn the call over to Adar Av, our CFO , who will discuss the financial results in detail.
Thank you, Eyal, and good morning, everyone. Now please turn to slide 8 for your financial highlights.
To help you understand the results, I will refer mainly to non-GAAP numbers, which exclude share-based compensation. We ended the second quarter of 2022 with $11.1 million in revenue, increasing from $9.8 million in the second quarter of 2021. At the same time, as we increased revenue by over 14%, we managed costs and maintained the same operational expenses as in the second quarter of 2021. This contributed to us reaching a break-even point in improving the bottom line.
$196,000 compared to the second quarter of 2021.
We received a grant of $197,000 from the Israel Innovation Authority during the quarter, compared to $70,000 in the second quarter of last year.
As a result, our net R&D expenses for the second quarter of 2022 on an UNGAP basis were $4.5 million compared to $4.8 million in the second quarter of 2021. We expect the Israel Innovation Authority grant in the third quarter to be a similar level as in the second quarter.
Sales and marketing expenses for the second quarter of 2022 were $2.5 million on a non-GAAP basis, an increase of $221,000 compared to the second quarter of 2021. G&A expenses for the second quarter of 2022 on a non-GAAP basis were $841,000 as was in the second quarter of 2021.
Operating income on an UNGA basis for the second quarter of 2022 was $176,000 compared to an operating loss of $646,000 for the second quarter of 2021.
Net income for the second quarter of 2022 on an un-GAB basis was $50,000 or a net income of less than a cent per diluted share compared to a net loss of $304,000 or a net loss of two cents per diluted share for the second quarter of 2021. The positive net income was due to the increase in revenue and the decrease in operating expenses offset by the unfavourable impact of change in foreign exchange rates.
On a gap basis, as you can see on slide seven, our net loss for the second quarter of 2022 was $1.2 million, or a net loss of $0.09 per diluted share compared to a net loss of $1.1 million, or a net loss of $0.08 per diluted share for the second quarter of 2021. At the end of the second quarter of 2022, our rate count was 284, turning to the balance sheet. As you can see on slide 11, our cash, cash equivalence, and short-term bank deposits were $1.2 million.
If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received.
Please stand by while we poll for your questions. The first question is from Alex Henderson from Needham & Company. Go ahead. Hello. Thanks for a nice print and congratulations on being able to raise the guide. So nice progress. I think I pretty much know the answer to this, but I'm going to ask it anyway, just to be sure. It sounds like your level of visibility, the number of deals that you're chasing...
the degree to which those are progressing is improving despite the economic conditions. Can you confirm that there's no impact from the macro environment based on the strategic importance of these projects? That you're fairly well insulated from that.
Hi, good morning Alex and thank you for your kind words. Yes, our improved results and our overall execution is based on our recent wins and our positive momentum with our new and existing customers.
As we continue to be focused on our projects and transformation to 5G networks, we don't currently see any impact from the global economic environment.
We continue to see demand for our solution and we continue to see operators invest in the migration of their network to 5G.
On a similar vein, to just remind me, I believe you price in dollars globally. Is that accurate?
Zoe, can you repeat?
Yes, I believe you price in dollars globally. Is that accurate? Yes, yes.
The main part of our business is based on dollars and we do have some opportunities or businesses that are in foreign exchange but vast majorities in dollars.
So do you have any forex risk to the revenue base that we should be aware of? No, I think it's a marginal effect. Our key accounts and our largest contracts are within US dollar and we do not anticipate any fluctuations due to foreign exchange.
And conversely if I look at your operating structure you as I recall it don't hedge the shekel correct? Correct.
So the shekel has obviously moved quite sharply against the dollar. It's rebound a little bit, but it's still down substantially year over year. At these levels, how much of a positive is that relative to your cost structure?
So yes, we do not hedge and we did add some benefit of the weakening of the shekel as part of our expenses there. I believe about 25% of our expenses in shekel and so I think it's something that couple of hundreds of dollars that we gain due to the change. Per quarter? Yes. So based on the current environment...
a bit our sales and marketing in order to reach more accounts so any improvement there goes to the bottom line as we see in this quarter we managed to create some profit because of this saving in the R&D cost
So, can you just give us a little bit of a sense of what you expect in terms of the interest income line? Bouncing around all over the place between...
almost a million dollars in the first quarter and a contribution to an expense in the second quarter what should we be using in the back half of the year and which we'll be using as we go out over time assuming the exchange rates stay stable at current levels? So I believe that overall we are looking on expecting a small...
positive but you can never know because of the fluctuations of we have some money not in the US dollar some in Czech and some in other currencies and the fluctuations are as you know not always are not predictable but overall I think in average we are neutral to that we do see increased interest rate on the on the cash that we have is the interest rate of going up
So we are expecting to generate some money but it's not a...
I think something like 2% a year.
Right, and then down the tax rate line, just continue around $50,000, $60,000 a quarter kind of thing.
Yes.
Okay.
In terms of the pipeline, it sounds like it's progressing very well. Do you expect between now and year-end that you will have additional meaningful winds that will give you visibility to continuing double-digit growth in 2023 at this point, or do you think that the environment is such that things have slowed down a little bit and it might be more challenging to achieve that rate of growth in 2023.
So we are definitely continue to engage with multiple opportunities some of them are they definitely can close this year or in some of the beginning of next year which
will help us to improve our revenue to next year, to 2023. As I noted in my prepared remarks, we already have very good visibility into 2023, and we already have, I believe we can have double digit growth already with the visibility we have today. We still obviously have some things to execute, and between our recent wins and our...
good progress with our existing accounts and due to the fact that our business model is as you know multi-year recurring we already have the visibility for double digit goals for 2023 and we continue to work in order to accelerate that and have even higher goals
Just to be clear, you're not impacted by the number of subscribers in any way. So, for instance, RAC10 lowering the number of subscribers that it expected doesn't have an impact on you, right?
We have different business models but we have some customers that are using what we call pay as you grow, some are in enterprise license that is not dependent on subscriber. Overall we have like a minimum spend with most of our accounts with some of them with additional up side if they grow more than anticipated.
Okay, thanks. I'll see you at the floor. Thank you.
The next question is from Arjun Bhathia of William Blair. Please go ahead.
Thanks, Pat. Thank you for taking my questions and congrats on a good quarter guys.
Can you talk about this Simworld partnership that you have getting on their marketplace? What does that do for RADCOM? What kind of operators does that help you reach that you wouldn't have had access to otherwise? And what kind of contributions should we expect there over the next couple of years?
So I would look on that, you know, we can go by ourselves to any operator globally, but we are today focused on some operators which are...
most advanced with 5G and in the regions and areas that we feel there is a best fit to in terms of their maturity and in size. Even Gran Turcote and Symphony as the partner is a big benefit for us and a potential growth driver as they are in parallel marketing their own telecom stack and every operator that they are going to engage
will be a possible upside for us looking into expanding the assurance which we are today the assurance solution within this stack.
So firstly to accelerate our go-to-market efforts and in some cases the integrated approach that our solution is already pre-integrated with lots of the technology allow access also smaller carriers that are not always being approached by us our focus is more on the tier one.
But I would mainly look on that as another strategic channel that could any success of RAPID and SYMPHONY could be a success for us for additional carrier and accelerating our growth.
Is there anything that you can disclose just in terms of how the partnership works? If you are able to get additional carriers that come in there, what are the economics that we should expect that you have with Rakuten as a part of that agreement?
So eventually, Rakuten are mainly priming their overall solution and I would look on this kind of like an OEM solution that we are one of the options within the overall stack. And OEM is telling that if they are providing their solution, they could then also include our part as part of their overall deal.
Okay, got it. Very helpful. And then you talked about a lot of the opportunities that you have further down the road to potentially expand with Dish as that rollout continues. What do you expect in terms of timeline from how long those expansion opportunities take to play out? Is it a multiyear process that we're talking about?
Or is there anything near term that can happen there? So it's very hard to say we just announced our win In partnering with this a few months ago. I think like two three months ago. So we are now busy on implementing our solution and make sure that this gets the full benefit of the radical made solution to support their 5g launch and build of the network
We are engaged with them closely to make sure we provide the most value possible to make them successful. And with this engagement, they obviously raise additional ideas and capabilities.
very hard for me to predict when the upside will come but we are mainly focusing now on providing them the value out of this multi-year agreement we signed with them recently.
Okay, fair enough. Then the last one for me, we did see that the gross margins picked up and there was momentum there. I think I already talked about that as well. What's the driver there and how high do you think that can...
Fair enough. Then the last one for me, we did see that the gross margins picked up and there was momentum there. I think it's already talked about that as well. What's the driver there and how high do you think that can go over time?
Well we believe that our growth margin will be around the average growth margin that was in 2021 around 72% and this quarter the growth margin was 72% due to a third-party component
Of course, our growth margin fluctuates depending on the revenue mix.
Okay, got it. All right, awesome. Thank you very much for taking the questions guys. Thank you. Thank you.
Thank you.
This concludes RADCOM 2nd Quarter 2022 Results Conference Call.
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